Information Technology Spending and the Value of the Firm: The Case of Mexican Banks

Abstract

This paper analyzes the relationship between IT expenditure and the monetary value of organizations. Based on the case of the Mexican banking industry from 1982–1992, the paper’s hypotheses test the relationship between IT expenditure and the real and perceived market values of banks. Correlations are performed between annual IT expenditures for a 10 year period —when Mexico’s commercial banks were owned by the federal government— and bank selling prices, when the industry divestiture took place in 1992. The main findings are that IT spending has a positive impact on the value of the firm, when the value of the firm reflects the change of ownership or the control of the firm. Second, firms spending more on IT do not tend to reach higher selling prices. Other findings are presented. The model and its results are discussed in terms of the literature about value of investment and the productivity paradox.